No Detrimental Effect from Sandy on US Sovereign Creditworthiness

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...Moody's Analytics estimates the clean-up bill for last week's Hurricane Sandy, including infrastructure repair and replacement and assistance for affected citizens at $30 billion. We expect insurance will cover half of this, with the remainder borne both publicly and privately, leaving the federal government's portion of the clean-up bill at approximately $10 billion. The federal budget includes $7.5 billion for the Federal Emergency Management Agency, and spending authority for additional amounts. But in the context of approximately $3 trillion in US federal spending, these amounts are too minor to change the financial profile of the government of the United States (Aaa negative). Past natural disasters show there are rarely any discernable or long-lasting macroeconomic implications. Nor do natural disasters diminish the US government's capacity or willingness to service its outstanding debt. Preparations ahead of the storm and repairs post-Sandy alter the composition of domestic demand,...

US Fiscal Package Has Limited Positive Credit Implications - Issuer Comment – 2013/01/10 – US$ 200.00 – ...The fiscal package passed by both houses of Congress on 1 January further clarifies the deficit and debt trajectory of the federal government over the coming several years. It does not, however, provide a meaningful improvement in the government's debt ratios over even a longer time horizon. It is credit positive in that it will avert a recession, but its direct effects on US government (Aaa negative) creditworthiness are only marginally positive. We believe that further fiscal measures that lower future budget deficits are likely in coming months, which will be positive for the government's creditworthiness. However, the extent of those positive measures remains uncertain, and they will likely be tied to negotiations over the federal government's statutory debt limit. The limit was reached on 31 December, and an increase was notably absent from the 1 January fiscal package. The need to raise the debt limit may affect the outcome of future budget negotiations. Although the fiscal package...

United States of America - Analysis – 2012/12/27 – US$ 750.00 – ...Moody's Aaa rating of the US government is based on an assessment of very high economic strength, very high institutional strength, very high government financial strength, and low susceptibility to event risk. The rating carries a negative outlook, which was assigned primarily due to the rapid increase in federal government debt during the past five years and the uncertain debt trajectory in the medium term. The rating outlook will likely be either moved back to stable or the rating downgraded during the course of 2013, depending on the outcome of budget negotiations at the federal level and a further assessment of the resulting medium-term debt trajectory. The statutory debt limit will be reached soon if Congress does not act to raise it. The debt limit is a feature of the US government risk profile that marginally raises the susceptibility to event risk. Our view is that the probability of a missed interest payment on bonds resulting from a failure to raise the debt limit is extremely...

US Government to Reach Debt Limit Soon - Issuer Comment – 2012/12/26 – US$ 200.00 – ...The United States statutory debt limit will be reached again soon if Congress does not act to raise the limit. We view the debt ceiling as a permanent feature of the US government risk profile (Aaa / negative outlook), as captured in our view on susceptibility to event risk. We expect protracted negotiations on the budget, and the debt ceiling may not be addressed until a budget agreement is reached or the government comes close to exhausting all other temporary measures. Nonetheless we expect the government will act to raise the limit, as it has done on many occasions in the past. Our view is that the probability of a missed interest payment on Treasury bonds is extremely low, although we will monitor political developments in the coming months for evidence the probability has shifted. The US Treasury has said that it expects the statutory debt limit of $16.394 trillion to be reached by the end of this month. Debt subject to the limit, which includes both debt held by the public and intragovernmental...

Fed's Monetary Move Is Credit Positive for US Government - Issuer Comment – 2012/09/16 – US$ 200.00 – ...The Federal Reserve's decision last Thursday to embark on a new round of asset purchases, and its announcement that it expects to keep its target interest rate near zero for a longer period of time, are credit positive for the US government (Aaa negative). There are two channels through which these actions can affect the credit of the government. First, by keeping interest rates low, the Fed is contributing to lower borrowing costs for the US Treasury, even though this is not the goal of monetary policy. The second channel through which the Fed's policy can affect the federal government's finances is its effects on economic growth. Low interest rates. The Fed announced last week that it expected to maintain the near-zero target for the federal funds rate through the first part of 2015, meaning that interest rates on Treasury bills and shorter-term bonds will likely remain at their currently exceptionally low levels for a considerable time. The Fed's simultaneous announcement that it would...

Update of the Outlook for the US Government's Debt Rating - Special Comment – 2012/09/10 – US$ 750.00 – ...The US government bond rating remains unchanged at Aaa with a negative outlook. The direction of the US rating and its outlook will most likely be determined by the outcome of budget negotiations during the course of 2013. In particular: + If those negotiations lead to specific policies that produce a stabilization and then downward trend in the ratio of federal debt to GDP over the medium term, the rating will likely be affirmed and the outlook returned to stable. + If those negotiations fail to produce a plan that includes such policies, we would expect to lower the rating, probably to Aa1. + The maintenance of the Aaa with a negative outlook into 2014 is highly unlikely unless the method adopted to achieve debt stabilization involved a large, immediate fiscal shock with a resulting unstable economic situation. Such a shock could come from the so- called "fiscal cliff." In such circumstances, we would await evidence that the economy could rebound from the shock before considering a return...

Banking System Outlook: United States of America - Banking System Outlook – 2012/09/03 – US$ 750.00 – ...The US banking system outlook remains negative. The outlook predominantly reflects a challenging domestic operating environment, characterized by low interest rates, high unemployment, weak economic growth and uncertainty over US fiscal policy. Compounding this challenge is the threat of contagion stemming from the sovereign and banking crisis in Europe. Together, these attributes undermine the strength of economic recovery in the US, and expose the economy to a heightened risk of shocks. These visible macroeconomic threats are driving our negative outlook on the US banking system and trump the fact that most individual US banks' rating outlooks are stable. Note that the financial crisis resulted in the median US bank rating falling by two notches to A3/Prime-2 from A1/Prime-1. However, in the past two and a half years, the majority of US banks' rating outlooks changed to stable from negative at their lower rating levels. A common driver for the change in the banks' rating outlooks has...

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